Technical Market Report for May 16, 2015

The good news is: • The S&P 500 (SPX) closed at a all time high Friday.

The negatives

New highs picked up a little last week, but, considering the major indices are at or near their all time highs they remain anemic. This implies a narrowing of leadership.

The chart below covers the past 6 months showing the S&P500 (SPX) in red and a 10% trend (19 day EMA) of NYSE new highs (NY NH), in green. Dashed vertical lines have been drawn on the 1st trading day of each month.

NY NH is near its low of the past 6 months while the SPX is at an all time high.

The next chart is similar to the one above except is shows the NASDAQ composite (OTC) in blue and OTC NH, in green, has been calculated from NASDAQ data.

OTC NH is also near a 6 month low while the index is less than 1% off its all time high.

The positives

Last week, new lows retreated from their elevated levels of the previous week and, of course, all time index highs are a positive.

The next chart covers the past 6 months showing the SPX in red and a 40% trend (4 day EMA) of NYSE new highs divided by new highs + new lows (NY HL Ratio), in blue. Dashed horizontal lines have been drawn at 10% levels for the indicator, the line is solid at 50%, neutral level.

NY HL Ratio rallied to finish the week at a positive 73%.

The chart below is similar to the one above except it shows the OTC in blue and OTC HL Ratio, in red has been calculated from NASDAQ data.

OTC HL Ratio also rallied to finish the week at a comfortably positive 71%.

Seasonality

Next week includes the 5 trading days prior to the Memorial day weekend during the 3rd year of the Presidential Cycle. The Uniform Monday Holiday Act of 1968 moved Memorial Day from May 30th to the last Monday of May beginning in 1971.

The tables below show the daily change, on a percentage basis for the 5 trading days prior to the 3rd Friday of May during the 3rd year of the Presidential Cycle.

Data for both indices cover the period from 1971 to 2014. There are summaries for both the 3rd year of the Presidential Cycle and all years combined.

Average returns for the coming week have been modest and mixed.

Report for the 5 days before Memorial Day. The number following the year represents its position in the Presidential Cycle. The number following the daily return represents the day of the week; 1 = Monday, 2 = Tuesday etc.

OTC Presidential Year 3

Year

Day5

Day4

Day3

Day2

Day1

Totals

1971-3

-0.40% 1

-0.85% 2

0.03% 3

0.07% 4

0.60% 5

-0.55%

1975-3

-0.55% 1

-0.17% 2

-1.10% 3

0.75% 4

1.30% 5

0.24%

1979-3

0.11% 1

0.56% 2

0.17% 3

-0.02% 4

0.44% 5

1.27%

1983-3

0.10% 1

1.15% 2

0.59% 3

0.72% 4

0.21% 5

2.77%

1987-3

-1.27% 1

-1.30% 2

-0.39% 3

0.47% 4

-0.26% 5

-2.76%

1991-3

-0.27% 1

0.73% 2

0.76% 3

0.47% 4

0.63% 5

2.33%

Avg

-0.37%

0.19%

0.01%

0.48%

0.46%

0.77%

1995-3

0.76% 1

0.97% 2

-0.19% 3

-0.08% 4

-0.62% 5

0.85%

1999-3

-2.63% 1

-2.97% 2

1.81% 3

-0.20% 4

2.12% 5

-1.87%

2003-3

-2.97% 1

-0.11% 2

-0.08% 3

1.19% 4

0.17% 5

-1.81%

2007-3

0.80% 1

0.36% 2

-0.42% 3

-1.52% 4

0.76% 5

-0.03%

2011-3

-1.58% 1

-0.46% 2

0.55% 3

0.78% 4

0.50% 5

-0.21%

Avg

-1.13%

-0.44%

0.33%

0.04%

0.59%

-0.61%

OTC summary for Presidential Year 3 1971 - 2011

Averages

-0.72%

-0.19%

0.16%

0.24%

0.53%

0.02%

% Winners

36%

45%

55%

64%

82%

45%

MDD 5/25/1999 5.52% -- 5/21/2003 3.16% -- 5/20/1987 2.94%

OTC summary for all years 1971 - 2014

Averages

-0.12%

-0.19%

0.04%

0.25%

0.13%

0.10%

% Winners

44%

45%

57%

59%

59%

61%

SPX Presidential Year 3

Year

Day5

Day4

Day3

Day2

Day1

Totals

1971-3

-0.85% 1

-0.66% 2

0.12% 3

-0.19% 4

0.23% 5

-1.35%

1975-3

0.11% 1

-0.51% 2

-1.12% 3

0.37% 4

1.33% 5

0.18%

1979-3

0.21% 1

0.37% 2

-0.63% 3

0.05% 4

0.29% 5

0.29%

1983-3

0.80% 1

1.29% 2

0.40% 3

-0.44% 4

-0.62% 5

1.44%

1987-3

-0.27% 1

-2.45% 2

-0.50% 3

0.70% 4

0.71% 5

-1.81%

1991-3

-0.03% 1

0.82% 2

0.22% 3

-0.32% 4

0.67% 5

1.37%

Avg

0.16%

-0.10%

-0.32%

0.07%

0.48%

0.29%

1995-3

0.86% 1

0.94% 2

0.00% 3

0.00% 4

-0.93% 5

0.87%

1999-3

-1.77% 1

-1.71% 2

1.59% 3

-1.79% 4

1.59% 5

-2.09%

2003-3

-2.49% 1

-0.11% 2

0.40% 3

0.92% 4

0.14% 5

-1.14%

2007-3

0.15% 1

-0.06% 2

-0.12% 3

-0.97% 4

0.55% 5

-0.46%

2011-3

-1.19% 1

-0.08% 2

0.32% 3

0.40% 4

0.41% 5

-0.15%

Avg

-0.89%

-0.20%

0.44%

-0.29%

0.35%

-0.60%

SPX summary for Presidential Year 3 1971 - 2011

Averages

-0.41%

-0.20%

0.06%

-0.12%

0.40%

-0.26%

% Winners

45%

36%

64%

45%

82%

45%

MDD 5/27/1999 3.68% -- 5/20/1987 3.21% -- 5/20/2003 2.60%

SPX summary for all years 1971 - 2014

Averages

-0.01%

-0.08%

-0.05%

0.12%

0.09%

0.07%

% Winners

55%

48%

52%

55%

57%

59%

Money supply (M2)

The money supply chart was provided by Gordon Harms. Money supply growth leveled off last week.

Conclusion

The recent period of weakness appears to have ended and there are still 2 months of seasonal strength remaining.

I expect the major averages to be higher on Friday May 22 than they were on Friday May 15.

Last weeks negative forecast was a miss.

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